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How to pay less tax in 2011

January 7 2011 by Sarah Eble

As always, please seek advice before taking any action regarding your personal or business tax affairs. To find out if these tax-saving initiatives are right for you, get in touch.

New Tax Scheme: Tax Relief on Life Cover

There is a new scheme available called Relevant Life Trusts which allow life cover for individuals to be paid by the business and for the business to receive full corporation tax relief on the premiums.

Normally, you pay for your life cover personally – or, if the business pays for it, then you are taxed as a benefit in kind and there is no corporation tax relief.

However, by setting up things through a Relevant Life Trust, you are able to save tax. The setup process is simple and we will help you through it.

Get in touch if you are a company director currently paying more than £50 per month for life cover. If you’d like a general review of your personal or business protection cover, please e-mail or call 0845 201 1580.

ISA’s: Unlocking more than just your £5,340 cash allowance

With the 5th April deadline fast approaching, ISA’s should be a no-brainer for almost everyone who has investments as they are by far the most advantageous product from a tax & flexibility perspective.

Every taxpayer has an annual ISA allowance of £10,200 in total (rising to £10,680 from 6 April 2011) – not just the £5,100 which you can invest in cash (rising to £5,340 from 6 April 2011). You CANNOT carry this allowance forward to future years, so you need to use your allowance by 5th April each tax year or it will be gone forever! 

Income and gains are predominantly tax-free inside an ISA and our advice would often be to make the most of these tax-privileged investments before looking at anything else.

One word of caution – investment ISA’s can provide great potential for long-term growth but there are risks, so please get advice before committing to any investment.

Pension Scheme Contributions: New 3 Year Carry Forward

Yet more news on the pension scheme tax relief regime from 6 April 2011. It is now apparent that if you do not use all of your new £50,000 annual contribution limit you can carry it forward for a maximum of 3 years.

Although this new rule does not come in until the 2011/12 tax year, you can use it to cover the earlier tax years 2008/09, 2009/10 and 2010/11 by carrying forward unused relief in those years to pay up to 3 years’ later. We’ll happily show you how this would work in your specific circumstances and outline the tax benefits for you.

Venture Capital Trusts and Enterprise Investment Schemes

VCT’s and EIS’s are often riskier investments and they most certainly are not right for everyone, so you need to think carefully before investing in any of these schemes. However from a tax perspective, they are certainly a very attractive option for the right person.

One of the main benefits is the tax relief you get on the initial investments. 

VCT’s (Venture Capital Trusts) attract tax relief on the initial investment at 30%. This means if you invest £10,000, you will get £3,000 back in tax relief immediately. You will need to hold the investment for 5 years and the maximum investment is £200,000 per person per tax year.

EIS (Enterprise Investment Schemes) now attract tax relief on the initial investment at 30%.  This was changed in the 2011 Budget. This means if you invest £10,000, you will reduce your tax bill by £3,000 immediately. You will need to hold the investment for 3 years and (from April 2012) the maximum investment has also been increased to £1,000,000 per person per tax year.

Please take advice before investing in either of these schemes as they are only suitable for certain types of investor.

If you would like to find out what the best options are for you, call Wow on 0845 201 1582 or email us  to book your free initial tax-planning consultation.

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